Suppose That Canada Decides to Peg Its Dollar ($C, or the Loonie)

question 59

Multiple Choice

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. What might the U.S. Federal Reserve do to offset the macroeconomic effect of the leftward shift in the U.S. IS curve?

• A) It would increase the money supply.
• B) It would decrease the money supply.
• C) It would not change its monetary policy.
• D) It would not change its fiscal policy.

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